Norwich Union takeover bid costs 600 jobs

NORWICH UNION yesterday announced a pounds 315m agreed bid for London & Edinburgh, a rival insurer, and warned it would need to cut 600 jobs from the combined group.

Richard Harvey, chief executive of Norwich Union, said 230 jobs will disappear at Worthing, the head office of London & Edinburgh. A further 370 jobs will be cut from both companies in the next two years.

Mr Harvey said London & Edinburgh was "a very clean and neat fit", which would strengthen NU's position in the general insurance market. The acquisition will make NU the third biggest general insurer in the UK, after Royal & SunAlliance and CGU.

The 600 job losses were small relative to a staff of 4,600, Mr Harvey said. "Given the size of the operation, we don't see this as a frightening number of redundancies." Redundancies will cost pounds 35m to implement and should save pounds 30m a year by the year 2000.

The takeover was poorly received in the City. NU shares fell 2 per cent to 430p on a rising market, valuing the company at pounds 8,364.5m. Merrill Lynch downgraded its recommendation on the stock amid concerns the deal would weaken NU's focus on life insurance.

James Pearce, an insurance analyst at Fox-Pitt Kelton, said: "It is not clear that Norwich Union has chosen the right business to expand... the transaction reduces the quality of Norwich Union's earnings."

The takeover will be financed from NU's existing cash reserves, which stood at pounds 250m when the insurer floated last year. However, Mr Harvey said NU would benefit from pounds 228m in assets held by London & Edinburgh.

He added the deal would boost Norwich Union's share of the motor insurance market from 11 to 14 per cent. Its share of household insurance will grow from 6 to 12 per cent.